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SEP IRA contribution for earnings from two calendar years


Guest nirvana
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Guest nirvana

I have a two employee c corporation (Sep to Aug fiscal year) and since the tax laws allow contribution for the previous calendar year, the corp has contributed in August this year for calendar year 2003 earnings (25% of earnings). Can the corp also contribute in August this year itself for 2004 earnings so far?

I am hoping to make this contribution since the corp has cash available which will be taxed otherwise at the end of the year (Aug 31). Also, we are considering closing the corp by Aug 31.

If contribution can be made for year 2004 earnings would the limit of 41000 hold?

Thanks

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Appears that the plan year is the CY. If so, yes; but the "2004" contribution will be deductible on the tax return (due Novemeber 2005) rather than on the August 31 return (due Novemebr 2004).

The limit for the 03-04 plan year is $40,000; $41,000 for the PY starting in 2004. Somewhat less if the plan were integrated.

The plan appears to be nonintegrated. If so, contributions can be made at any time. Generally, no problems when based on year to date earnings.

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Guest nirvana

Gary, thanks for your reply.

Yes, the plan year is Jan 1 to Dec 31. I am hoping to deduct the contribution for earnings from CY 2004 in the current tax return year of the corp (Sep 1 2003 to Aug 31 2004). From your reply it appears that might not be possible since I can deduct only for CY 2003 earnings.

Is there any workaround that allows me contribute a percentage of 2004 earnings as part of the corporations current tax year since the corp will be liquidated on Aug 31?

Thanks.

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Can't see how to deduct early. The contribution made for the 2004 plan year are deductible on the 2004-2005 fiscal year return. Won't there be a final return filed at a later date on which to claim the contribution deduction?

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Guest nirvana

>>Won't there be a final return filed at a later date on which to claim the contribution deduction?

I could file a later return but since the money is available right now that would mean that corporate taxes would need to be paid on the amount if it is carried over to the next year. And here in NC the state + federal taxes put together are not light on the pocket.

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